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Chapter 6

Investment appraisal under uncertainty

Outcome

By the end of this session you should be able to:

 distinguish between risk and uncertainty in investment appraisal (IA)

 define sensitivity analysis and discuss its usefulness in assisting investment
decisions

 apply sensitivity analysis to investment projects and explain the meaning of the
findings

 define an expected value (EV) and discuss the usefulness of probability
analysis in assisting investment decisions

 apply probability analysis to investment projects and explain the meaning of the
findings

 discuss the use of simulation to take account of risk and uncertainty in IA

 discuss the use of adjusted payback in IA

 calculate the discounted payback and discuss its usefulness as an IA method

 explain the principle of adjusting discount rates to take account of risk

and answer questions relating to these areas.

The underpinning detail for this Chapter in your Integrated Workbook can
be found in Chapter 6 of your Study Text

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